Muhtar Kent – Fortunehttp://fortune.com
Fortune 500 Daily & Breaking Business NewsSat, 10 Dec 2016 01:09:35 +0000enhourly1http://wordpress.com/http://1.gravatar.com/blavatar/dab01945b542bffb69b4f700d7a35f8f?s=96&d=http%3A%2F%2Fs2.wp.com%2Fi%2Fbuttonw-com.pngMuhtar Kent – Fortunehttp://fortune.com
Fortunehttps://s0.wp.com/wp-content/themes/vip/fortune/assets/images/fortunelogo.pnghttp://fortune.com25040Questions on Brand as Coke’s CEO Steps Downhttp://fortune.com/2016/12/09/questions-on-brand-as-cokes-ceo-steps-down/
http://fortune.com/2016/12/09/questions-on-brand-as-cokes-ceo-steps-down/#respondFri, 09 Dec 2016 19:41:59 +0000http://fortune.com/?p=1879366]]>Today’s announcement that Coca-Cola CEO and chairman Muhtar Kent will step down in May after eight years at the helm of the giant beverage company was not a big surprise. Nor was the news that Coke president and COO James Quincey will replace him; he has been the expected successor for some time and is well regarded by Wall Street.

But the changeover also represents something else; the departure of a man who exemplified a strategy that almost every global brand followed, but that may no longer be relevant today. It was the notion that one brand identity could mean the same thing to people all over the world--and that increasing the scale and power of that brand was the single most important thing that a big consumer products company should do.

It’s a problem faced not only by Kent and Coke but also by virtually every single major company in the food and drink category. (Technology, where Apple and others have achieved brand ubiquity for now, is an exception to this trend). In this era of personalization, where your apps, your mattress and, yes, your cola choices are customized, being the biggest and most efficient doesn’t necessarily win. This--plus the increasing desire to avoid sugary drinks--helps explain why Coca-Cola has struggled, with annual revenues falling by $4 billion in the past three years. Says Jim Stengel, head of branding consultancy the Jim Stengel Co. and former global marketing head at Procter & Gamble: “This is in my mind the biggest issue for global, scale-oriented CPG [consumer packaged-goods] brands: How to compete in a post-scale economy? The answer is not obvious or easy as it challenges the foundation of their business model.”

This new world also requires new leadership. Heads of global consumer brands will need to figure out the magic link between giving customers choice--Coke has tried to do this in recent years by, among other things, offering customizable soda fountains--and making such options cost-effective to produce. P&G is one company facing similar pressures–as is McDonald’s. Coke and Kent are to be congratulated for pulling off a (so far) seamless CEO succession. But whoever the CEO is, the big brand challenge isn’t going away.

]]>http://fortune.com/2016/12/09/questions-on-brand-as-cokes-ceo-steps-down/feed/0Logo of Coca-Cola on a bottle. The strong dollar hit Coca-jennrein5 Things to Know About Coca-Cola’s CEO Changehttp://fortune.com/2016/12/09/coca-cola-ceo-change-muhtar-kent-james-quincey/
http://fortune.com/2016/12/09/coca-cola-ceo-change-muhtar-kent-james-quincey/#respondFri, 09 Dec 2016 16:25:31 +0000http://fortune.com/?p=1879211]]>On a day when the beverage community came together for the industry’s Beverage Digest Future Smarts conference in New York City, Coca-Cola managed to dominate the news by announcing long-serving CEO Muhtar Kent will step down in May after serving in the role for eight years.

Kent will be succeeded by company veteran James Quincey, who most recently served as president and chief operating officer. The transition occurs almost immediately after a Coca Cola ko shareholder meeting in April. Kent, who on Friday morning described the transition as the most orderly CEO change in Coke’s history, will remain chairman of the board.

Shareholders didn’t seem to fret the CEO change. Coke’s stock is up over 2% in Friday morning trading. Marcos de Quinto, Coke’s chief marketing officer, coincidentally spoke first at the Beverage Digest conference. When asked about why Quincey is the right executive to run Coke now, de Quinto had nothing but praise.

“He is not only probably the best professional we can have in this moment. As a person - he is fantastic,” de Quinto said. “He is bright, and the way he treats people, there is no one like James.” De Quinto went on to laud Quincey’s strength as an expert in operations, a good sense of marketing, and support from Coke’s core bottling partners--who help distribute the beverage giant’s portfolio of sodas, waters and juices.

Still, there will be challenges ahead. Here’s five things to know about this major CEO change in the world of Big Food.

Coca-Cola has underperformed under Kent

A peek at the latest annual filing by Coke shows that the company’s shares have underperformed both a peer group index and the S&P 500. If an investor were to put $100 into Coke’s shares on December 31, 2010, that investment would be worth $151 apiece by the end of 2015. But returns were far stronger for the peer group index--a basket of stocks that include rivals like PepsiCopep and Dr Pepper Snapple dps--with a $100 investment over the same timeline appreciating to $218. Revenue has also faltered: it stood at $48 billion in 2012 but dropped to $44.3 billion last year. Revenue is down a further 5% for the first nine months of this year.

Kent inked deals; expect more to come

Under Kent, Coca-Cola announced a slew of deals--most notably moving to acquire some of the company’s big bottling partners after decades of keeping bottlers separate from the marketing and R&D behind brands like Coke, Sprite and Minute Maid. In 2010, Coke went forward with a deal to buy the North American operations of bottler Coca-Cola Enterprises, giving it almost full control of bottling in that region. It also took stakes in other beverage companies like Monster Beveragemnst and Keurig Green Mountain--the latter investment gave Coke a tidy $25 million profit after Keurig was sold.

More investments under Quincey would likely take the form of a small, startup investment followed by a full-on takeover later. That’s how last month, PepsiCo bought KeVita and Dr Pepper Snapple acquired Bai Brands. “We tend to believe that given James’ background and significant deal experience, he could accelerate Coke’s growth even further through stepped-up acquisitions over the next several years,” wrote Wells Fargo analyst Bonnie Herzog in a research note.

Of course, Coke itself could become a target. Analysts have said beer giant Anheuser-Busch InBev, which recently swallowed SABMiller, could look to Coke or PepsiCo next.

Coke needs to win market share in declining soda market

In the core U.S. market, carbonated soft drinks sales have slid for 11 straight years, hurting all the major players as consumers are drinking more bottled water, flavored waters, juices and other beverages they deem healthy. Coke hasn’t been immune from that trend: last year Diet Coke volume slipped 5.6% while the namesake brand’s drop was 1%. Analysts and beverage experts agree this trend will almost certainly continue, and there has been criticism from some that the company has been too slow to diversify beyond carbonated soft drinks, which still contribute 75% to sales. Beyond diversifying through deals or internal innovation, Coke needs to try to win market share in a declining market.

Confront new taxation

As health experts have spent years lamenting the high sugar and artificial flavors found in many mainstream sodas today, governments have taken note and recently deemed the soda industry an easy taxation target. High taxation has for decades impacted the alcohol and tobacco industries, both viewed as “vices” among consumer products. Now, the soda industry is seeing itself a target as well. The reason? Sodas have been linked to increased risk of obesity, heart disease and other negative health effects, so government officials are lauding taxation as a way to cut consumption to help public health.

Mexico introduced a 10% tax on sugar-sweetened beverages in 2014 and this year, cities in the U.S. followed suit. Philadelphia became the first major city to pass such a tax earlier this year. On election day, four more cities--including San Francisco and Oakland in California--also approves taxes on sugar-added beverages. More taxes from local governments could be in the pipeline. And sodas may have limited wiggle room to raise prices like tobacco players did in the face of taxation, as there are plenty of beverage alternatives to soda.

Quincey has got a global view

One of the most important skills Quincey brings to the table: plenty of international experience. When he joined the company in 1996, his first role was director of learning strategy for the Latin America Group. In the subsequent years, Quincey held various roles in Latin America, served as president of the Mexico division, and also worked in Europe for years, most notably leading Northwest Europe and the Nordics regions. He also played a key role leading the merger with Coca-Cola Enterprises and other European bottlers.

At the Beverage Digest conference, analysts said the appointment was more a question of when--not if Quincey would get the title. “My understanding is he is a real get-it-done guy,” said Caroline Levy, a beverage analyst at CLSA. “As a long term investment, Coke is really interesting, but in the near term there are some challenges.”

The biggest cause of concern seemed to center on Coke’s 2016 revenue target. Because organic revenue only grew 2% in the first quarter, it implies that growth will accelerate throughout the rest of the year to make up for the difference. And the analysts that closely cover Coke aren’t fully convinced management can hit their numbers.

Steve Powers, an analyst at UBS, asked management early in the conference call about the top line acceleration. Powers asked if it was fair to assume that Coke was actually targeting growth more toward the low end of that sales range.

“We are confident, definitely, in the strategy and initiatives in place to support our growth targets over the course of the year,” said CEO Muhtar Kent in response to that question. Kent pointed to the launch of a new campaign that would aid results later in the year, as well as the benefit of Summer Olympics marketing in the second and third quarters.

Not everyone was persuaded.

Berstein’s Ali Dibabj later in the call got even testier. His comment: “I’m getting a lot of skepticism from investors about the 4% to 5% organic revenue growth target for the year and openly you don’t sound 100% confident.” He went on to ask Coke what specifically gave the executives the confidence they would hit those numbers.

On the defense at this point, Kent-who recently saw his pay cut as Coke faces challenges in selling soda in many mature markets-again pointed to marketing plans and said different quarters perform differently. Essentially, he is saying don’t judge 2016 on the performance of the first three months of the year.

Ultimately, what Coke is facing is a big challenge to the company’s core soda business. In markets like the U.S., volume for the industry has slipped drastically as consumers move toward drinks they deem healthier than soda. Coke has tried to pivot but perhaps not fast enough. Packaged water has been a bright spot for the industry and Coke has made investments in startup brands and even recently made a big splashy launch in the milk category, but ultimately, soda is still a big business for the beverage giant.

In the first quarter, North America volume grew 2% but only because of a 5% increase for “still” beverages--including gains for juices, sports drinks, teas, and packaged water. Volume for the “sparkling” business were flat, hurt by a weak performance for the namesake soda. Peer PepsiCo pep is facing similar challenges though the two business aren’t entirely comparable, as Pepsi also derives a ton of business from food, while Coke is completely focused on beverages.

Overall, Coke on Wednesday reported total operating revenue of $10.28 billion for the quarter, down 4% from last year. Adjusted earnings slipped to 45 cents per share from 48 cents.

]]>http://fortune.com/2016/04/20/coca-cola-sliding-shares/feed/0gettyimages-471729428johnnerkellCoca-Cola Slashes CEO Kent’s Pay for 2015http://fortune.com/2016/03/11/coca-cola-ceo-pay-cut/
http://fortune.com/2016/03/11/coca-cola-ceo-pay-cut/#respondFri, 11 Mar 2016 17:57:10 +0000http://fortune.com/?p=1583627]]>Beverage giant Coca-Cola has cut CEO Muhtar Kent’s total annual pay by 42%, a move that comes after the company promised to reduce equity compensation for top executives.

Kent’s total pay was reduced to $14.6 million last year from 2014’s $25.2 million, according to a filing with the Securities and Exchange Commission. Much of the reduction was due to fewer stock and options awards. His base salary was unchanged at $1.6 million.

Bloombergnotes that the changes to executive pay were needed to appease investors, especially as it relates to stock awards, which dilute the value of investors’ shares. Maria Elena Lagomasino, a member of Coke’s board, explained the changes in more detail in a blog post and also touted the reduction in equity compensation as progress that was needed to address shareholder feedback.

The pay cut for Kent comes as Coke is at an important inflection point. The company, challenged by weak soda sales in mature markets, unveiled a plan to boost growth and increase profitability partly by moving to cut billions in costs. Kent would go on to describe 2015 as a “transition year, ” a year when fully reported revenue dropped 4%.

Coke’s pivot-which includes a plan to re-franchise 100% of company-owned North American bottling territories by the end of 2017-takes place as the beverage giant’s shares have underperformed its peers in recent years. Over the past five years, Coke’s shares rose 39%, underperforming PepsiCo pep, Dr Pepper Snapple dps, and the broader Standard & Poor’s 500 index.

The CEOs of Coca-Cola KOand PepsiCo PEPhave come together to create a public service announcement for American Corporate Partners (ACP), a nonprofit that connects veterans to professionals for career guidance. In the spot, Coke’s Muhtar Kent and Pepsi’s Indra Nooyi encourage Americans to volunteer on ACP AdvisorNet, a free career advice site for veterans.

“Coke and Pepsi, together?” Kent says in the spot, with mock incredulity. “One thing that unites us is supporting our veterans,” Nooyi explains.

Jokes aside, getting the two CEOs to work together wasn’t as challenging as you would think, says ACP founder and chairman Sid Goodfriend. When Goodfriend approached Nooyi, a longtime partner of ACP, with the idea, “she thought about it for a moment, smiled, and said ‘I’ll do it if he’ll do it,” Goodfriend says. Kent followed suit: “If Indra's doing it, I'll do it too,” Goodfriend recalls him saying.

“They compete on the beverage side for customers, but independently both companies are very focused on veterans,” Goodfriend says. Bothhave robust veteran recruiting programs, and are “veteran friendly,” he says.

This is the first time the two CEOs have come together in such a public way, but that doesn’t mean they haven’t met before. According to a Coke representative, Nooyi even went to a reception hosted by Coke during the World Economic Forum at Davos.

While the meeting of the beverage bosses may not seem like a big deal, it’s a huge shift from how the two companies’ previous chiefs behaved. Roberto Goizueta, CEO of Coke from 1980 to 1997, and Roger Enrico, who held the top job at PepsiCo from 1996 to 2001, famously never met or tasted their rival’s drinks, wrote Fortune‘s Pattie Sellers in 1996.

Who could have imagined that only 20 years later, the two companies would be featured in the same ad?

Watch the full clip here:

]]>http://fortune.com/2015/11/10/coke-pepsi-veterans-day/feed/0Indra Nooyi NYSE 2015 #G5002015 #womanceovalzaryaCoca-Cola responds to criticism over research fundinghttp://fortune.com/2015/08/20/coca-cola-research/
http://fortune.com/2015/08/20/coca-cola-research/#respondThu, 20 Aug 2015 17:08:23 +0000http://fortune.com/?p=1258324]]>Coca-Cola wants you to know that it’s sorry. Well, “disappointed” is the word that CEO Muhtar Kent uses in an op-ed in the Wall Street Journal published Wednesday evening.

The CEO was responding to a storm of criticism directed at the soft-drink company after The New York Times revealed that Coca-Cola has contributed millions of dollars to a new non-profit called the Global Energy Balance Network. The non-profit advances the controversial argument through academic papers, conferences and social media that obesity is primarily the result of inactivity, not the overconsumption of calories.

In Wednesday’s op-ed, Coca-Cola’s CEO writes: “By supporting research and nonprofit organizations, we seek to foster more science-based knowledge to better inform the debate about how best to deal with the obesity epidemic. We have never attempted to hide that.” He adds that Coca-Cola will continue to invest in research, but with more transparency. It will begin publishing on its website a list of its partnerships and funded research activities.

Kent also wrote that Coca-Cola will create an oversight committee of independent experts who will advise the company on future research investments.

However, he stopped short of addressing the criticism of the nonprofit, which one New York University professor called a “front group for Coca-Cola.” Health experts have responded angrily to the Global Energy Balance Network’s introductory video, in which VP Steven Blair said that there was “virtually no compelling evidence” for the scientific consensus that fast food and sugary drinks contribute to obesity. (Blair has since taken down the video and walked back his statement.) “Committed to acting with integrity when serving our customers and our communities, Coca-Cola has always believed that a healthy diet and regular exercise are essential for a healthy lifestyle,” Kent wrote.

For years, Coca-Cola has tried to shift the blame for America’s obesity problem to sedentary lifestyles rather than poor diets. In another op-ed in the Wall Street Journal published six years ago, Kent argued vehemently against a proposed soda tax. “If we’re genuinely interested in curbing obesity, we need to take a hard look in the mirror and acknowledge that it’s not just about calories in,” he wrote. “It’s also about calories out.”

As Americans become more health-conscious, Coca-Cola and other sugary companies have fallen into the crosshairs. Last year marked a full decade of declining soft drink sales. In response, Coca-Cola has doubled down on investments in lower-calorie versions of its drinks and diversified away from carbonated soft drinks.

]]>http://fortune.com/2015/08/20/coca-cola-research/feed/0Coca-Cola Post Strong EarningsclairegrodenCoke’s leadership formula: Sending its rising star execs away for six weekshttp://fortune.com/2015/05/14/coke-leadership-program/
http://fortune.com/2015/05/14/coke-leadership-program/#respondThu, 14 May 2015 15:54:24 +0000http://fortune.com/?p=1121664]]>On Monday, two-dozen Coca-Cola executives will become reacquainted with something they haven't seen for the past six weeks: their desks.

Since early April, this coterie of up-and-coming senior managers has been busy mixing with members of the C-suite at corporate headquarters in Atlanta, riding along on a Coke delivery truck in Florida, and visiting a wide range of internal operations and customer sites across the United States, Mexico, and Indonesia.

The globetrotting is integral to a leadership development program that Coca-Cola KO launched in 2013. Called the Donald R. Keough System Leadership Academy--in honor of the former president of Coca-Cola, who died in February--it aims to expose participants to the entire business, end to end.

Along the way, the participating executives are expected to take in what Coca-Cola CEO Muhtar Kent has described as a combination of "head knowledge and heart knowledge"--specific principles and practices to navigate a rapidly changing business landscape, as well as a deepened passion for the beverage maker's culture, values, and brand. (Disclosure: I spent two days teaching this year's group about managing innovation as part of my work at the Drucker Institute.)

Coca-Cola's challenges are well known. While the company is among the world's most admired, consumers are drinking less of its biggest product--soda--as they become more health-conscious. In turn, Kent has embarked on a campaign to boost productivity and cut costs.

For Coca-Cola's emerging leaders, the question is how to thrive and help their teams succeed "in the incredibly dynamic environment in which they operate," says Delia Cochran, the company's global director of capability, who oversees the Keough program.

Coca-Cola is hardly the only company working on this. Talent consultants at Bersin by Deloitte and Development Dimensions International say they see rising interest among major corporations in fostering executive development--though there's still plenty of room for more, with just seven cents of every training dollar spent in this area, according to Bersin.

"There's a new speed in business," says Dani Johnson, a Bersin vice president. "A strategy that worked two years ago isn't going to work two years from now. Decisions have to be made more quickly--and companies want to make sure that their leaders have the ability and confidence to make those decisions effectively."

The Coca-Cola program stands out in several ways. To start, few companies are willing to take top managers offline for a month-and-a -half. For those in the Keough Academy, emails and phone calls to their offices are highly discouraged.

"I've heard of a lot of leadership programs--but never an immersion like this at senior levels," says Doug Conant, the former CEO of Campbell Soup, who now serves as chairman of the Kellogg Executive Leadership Institute at Northwestern University and chairman of Avon Products.

The benefits of Coke's all-in approach are threefold. First, it allows those in the program to focus on just one thing: learning. Second, it forces the troops at home to step up and assume new duties, giving the leaders valuable insight into the strengths and weaknesses of their units.

"It's not just a stretch for us; it's a stretch for our teams," says Prashanthi Jella, a senior director in the company's R&D lab, who is attending this year's Keough Academy. She has 21 people reporting to her.

And third, traveling with your peers for weeks on end creates lasting bonds. During the session that I led on innovation, several of the Coca-Cola executives and their bottling-network colleagues, who also take part in the Keough Academy, discussed how they could collaborate on projects in the months ahead.

The Keough Academy is also distinct from other leadership programs in that its participants largely fly blind. They receive no advance agenda, and don't know much about what they're going to be doing in a particular location until they get on the ground. "That's by design," Cochran explains. "It takes them to a place of discomfort"--and, in that respect, nurtures the fast-on-your-feet thinking that's required in their day jobs.

In addition to some classroom lectures, the curriculum also includes a bit of role-playing as a way for the leaders to sharpen their listening skills. And at the conclusion of the program, they commit to a capstone project, to be completed when they return to their regular assignments, based on what they've absorbed throughout the six weeks.

But for many, the most valuable aspect of the program is getting out in the field and observing what's happening in markets other than their own. Andy McMillin, a senior vice president for Coca-Cola trademarks in North America, who was in last year's Keough contingent, says that the time spent in developing countries spurred him to adopt a "different mindset."

For instance, he brought back to his team some new packaging ideas that he saw in India. In Mexico, meanwhile, he learned to adjust his management style. "Mexico is one of our best-executing markets," McMillin says, because the executives there are "brutally honest" about what they need to do to constantly improve. He now encourages more open debate within his own team.

For Coca-Cola, there are surely other rewards--though they may take a while to materialize.

"The company is telling these people that they're more than a number in the system," says Barry Stern, a senior vice president at DDI. "I can't overstate the importance of that."

Indeed, while Coke won't disclose its budget for the Keough Academy, it's clearly considerable. And that isn't lost on those who are nominated by higher-ups and selected for the program. "I just look at the amount of investment the company has put in me," says Amit Tibrewal, Coca-Cola's vice president for business development in Hong Kong, who is in this year's Keough cohort. "That means they think I have what it takes to get to the next level--and with that comes a real sense of responsibility."

Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University. The author or editor of five books, he is currently writing a narrative history of how the social contract between employer and employee in America has changed since the end of World War II.

On July 8, Wintergreen Advisors’ David Winters sent a letter to the beverage giant’s major shareholders criticizing Coca-Cola's governance and operational performance. On Tuesday, he issued comments expressing disappointment with the company's second quarter earnings. And on Wednesday, he announced the launch of a dedicated website--Fixbigsoda.com--to disseminate his views about Coke and provide a forum for disgruntled investors.

In an interview with Fortune, Winters indicated that he had heard from a number of individual and institutional shareholders who agreed with him that while Coke was a "great company," it was not realizing its full potential. In response to Coke's second quarter earnings announcement on Tuesday, Winters said the following in a prepared statement:

Despite increased spending on brands and promises of improvement just around the corner, Coke remains stuck in neutral. Growth is sluggish, progress in refranchising North American bottlers is stubbornly slow, and costs continue to rise. Coca-Cola's management and board of directors continue to demonstrate an unwillingness or an inability to return Coca-Cola to profitable growth. Although Coca-Cola claims that its corporate governance is "Best in Class," there has been no progress to withdraw the 2014 Equity [executive compensation] Plan, which in our opinion reflects a failure of corporate governance and which could massively dilute shareholders while rewarding the top 5% of management for mediocre performance.

On Wednesday, Winters told Fortune that he intends to "remain a long-term investor in the company." But that he had heard from too many investors that they "remained concerned at the company's poor margins, especially in comparison to other drinks manufacturers such as InBev and SABMiller.”

"There are other companies out there who are doing a lot better though paying their managers a lot less," Winters said.

Winters has been a vocal critic of both Coke's performance and its recently approved equity pay plan for its executives, questioning the size of the plan’s awards and the weak performance hurdles executives must clear to earn stock bonuses.

Wintergreen Advisers waged a proxy war against the plan when it was first proposed on March 7, and major shareholders including the Florida State Board of Administration and the Ontario Teachers' Pension Plan voted against the plan. Coke's preliminary voting results, released shortly after the meeting, indicated the plan was approved by 83% of the "votes cast." But since a substantial number of shareholders abstained from the vote, this figure significantly overestimates the level of approval. In fact, the official vote count filed with the SEC showed that slightly less than half of the outstanding shares voted for the plan--49.77%, to be precise, with the rest opposing, abstaining, or simply not voting.

Warren Buffett, CEO of Berkshire Hathawaybrk.a, one of Coke's largest institutional shareholders, abstained from the equity pay plan vote, though he later called into question its efficacy. In an interview with CNBC, Buffett said, "I didn’t want to vote no. It’s kind of un-American to vote no at a Coke meeting. I told him [Coke CEO Muhtar Kent] ahead of time what we were going to do, sure. He knew if I abstained that I obviously wasn’t for the plan."

When asked about rumors that members of Coke's compensation committee had recently visited Buffett in Omaha, Winters said, "It's just another secret meeting. This is a publicly held company that should be managed for everyone not just one individual."

Winters also questioned the role of Howard Buffett, Warren Buffett's son, on Coke's board. "He's supposed to be the guardian of the Berkshire Hathaway culture on the board, yet the stories don't add up when you consider his having voted for a stock plan that seems to go against that culture."

Coca-Cola declined to offer comment.

It’s unclear if Winters' campaign will help boost Coke's performance and force through amendments to the equity incentive plan, though it is clear that he's not giving up anytime soon. Winters said he recognizes that Coke is a "very complex company operating globally in a large number of jurisdictions, but it has a huge advantage.

“It's not like a tech company that has to come up with a new app [every few weeks]. It already has a great product. It just needs to keep coming up with great ads to sell it."

]]>http://fortune.com/2014/07/23/coca-cola-david-winters-activist-investor/feed/0David Winterssolster2Coke’s executive pay: Fueled by corporate cronyismhttp://fortune.com/2014/05/12/cokes-executive-pay-fueled-by-corporate-cronyism/
http://fortune.com/2014/05/12/cokes-executive-pay-fueled-by-corporate-cronyism/#respondMon, 12 May 2014 18:08:42 +0000http://test-alley.fortune.com/?p=350425]]>FORTUNE — Over the past three years, Alexis Herman, a Coca-Cola director and a member of the drink company’s executive compensation committee, has received $2.9 million for her board work. Not all of it’s from Coke KO.

Herman is also on the compensation committees of engine maker Cummins CMI and utility Entergy ETR. She’s also on the board at casino company MGM Resorts International MGM. During that time, Herman has approved payouts of nearly $61 million for Coke CEO Muhtar Kent for three years of work. That might sound excessive, but not apparently to Herman, who collects around 20 times the annual salary of the average American for her part-time work.

Herman isn’t the only one on Coke’s board doing double-duty. Maria Elena Lagomasino, the chair of Coke’s compensation committee, is also the chair of the comp committee at cosmetics company Avon AVP. Helene Gayle, another member of Coke’s comp committee, has the same job on the board of Colgate-Palmolive CL.

Herman, a former U.S. Secretary of Labor under the Clinton Administration, has spent most of her career in politics. Despite her many appointments advising on compensation, Herman has never worked as a pay consultant or even in the human resources industry. Neither has Lagomasino or Gayle.

Coke has recently come under fire for what it pays its top executives. One of the company’s largest shareholders, David Winters, fought to strike down a stock option plan that may greatly increase how much Coke’s top executives are paid. Warren Buffett called the plan excessive, but declined to vote against it. Coke’s plan passed, but yes votes represented less than half of the company’s outstanding shares, after including abstentions and nonvotes.

According to a report in the Wall Street Journal, Coke is considering altering the controversial plan amid pressure from Buffett. A Coke spokesperson says that the plan “already offers maximum flexibility,” but declined to say whether that implied it would not be changed in the end. Over the past few weeks, even after criticism, Coke’s board members, including Lagomasino, have called the stock plan fair. The Coke spokesperson says its current compensation plan reflects changes based on investor feedback. What’s more, he said Coke’s board is regularly in touch with investors both big and small and open to feedback on all issues, including compensation.

Herman did not return requests for comment. Lagomasino referred a Fortune reporter to a Coke spokesperson.

The overlapping roles that board members play on various compensation committees and the lavish paychecks they receive for such work could be part of the answer.

Coke lists a group of companies in its proxy statement that it uses as outside comparisons to determine if its pay is out of line. On the list is Colgate-Palmolive, where Coke board member Gayle is part of the committee that sets pay. Colgate says it compares its executive pay to both Coke and Avon, which has the same compensation committee chair, Lagomasino, as Coke. And Colgate shows up as one of the companies that Avon checks against.

“When the same people are controlling pay at a number of companies, that can cause a direct ratcheting up of pay,” says Eleanor Bloxham, who heads The Value Alliance and Corporate Governance Alliance, a board education and advisory firm, and is a regular contributor to Fortune.com. “This seems like a group of people who will hand out a lot of stock.”

Avon has a stock option plan similar to the one that was approved at Coke. The main beef Winters and others had with the Coke plan was that if all the options authorized by the plan were exercised, that would increase the company’s outstanding shares by 16%. That’s nearly double the average 8.5% dilution of the stock option plans adopted by companies in 2014, according to compensation research firm ISS Corporate Services. Avon’s plan, by the same measure, would dilute existing shareholders by roughly 10%.

Ronald Allen, another member of Coke’s compensation committee, is also CEO of rent-to-own company Aaron’s AAN. The company and Allen have recently come under attack from an activist shareholder who says Allen has mismanaged the company. Aaron’s has a stock option plan that, if fully exercised, would dole out to Allen and Aaron’s other executives nearly 14.6 million additional shares, diluting current shareholders by 20%.

The problem may be even simpler than intentional acts of corporate cronyism. Compensation committees can be swayed by their own large paychecks, or net worth, into thinking $20 million a year is justified. Allen, for instance, has made $8.2 million over the past two years at Aaron’s, a much smaller company than Coke. Also on the compensation committee is James Robinson III, who is a former CEO of American Express AXP. During his tenure there in the 1980s, AmEx was regularly criticized for how much it paid Robinson, one of the top-paid executives in corporate America at the time. Robinson did not respond to a request for comment.

ANDY SERWER: Here to moderate our first panel, please welcome my colleague at Fortune, and a man who will never turn down an opportunity to have a Mao-tai toast, Senior Editor-at-Large Geoffrey Colvin. (Applause.)

GEOFF COLVIN: Thank you, Andy. Thank you very much.

So our first session is called New Rules of Business. And we start with that topic New Rules of Business for a reason. The rules all seem to have changed, and they continue to change so fast. Think about it, for decades the engine of global growth was the Western European and U.S. and Japanese consumer. No more. Our business models used to last years, many years, maybe 100 years. And now all of them are changing.

For 500 years the scarce resource in business was financial capital. It no longer is, even for capital-intensive companies, for all of us the scarce resource is human capital. The old rules are gone. We don’t know what the new rules are. We need to know. We need help from the best leaders of the biggest and most successful companies. We are fortunate to have three of the most eminent leaders from the Fortune 500 with us today to help us with that task. So Jamie Dimon here next to me, Chairman and CEO of JP Morgan Chase, which came through the financial crisis with a stronger market position, even stronger, than it had going in. It has earned record profits for the past three years, and in the 21 minutes since Andy Serwer called this forum to order, the bank has extended $70 million in credit to clients around the world.

Muhtar Kent is Chairman and CEO of the Coca-Cola Company, owner of the world’s strongest brand, doing business in more than 200 countries. In the past 21 minutes, over 26 million Coca-Cola beverages have been consumed around the world.

Yuanqing Yang is Chairman and CEO of Lenovo Group, which was founded in a guard shack at the Chinese Academy of Sciences in Beijing just 29 years ago, and this year will in all likelihood become the world’s number one maker of personal computers, plus a major force in tablets and smart phones. In the past 21 minutes, Lenovo has shipped over 2,300 computers, and probably more than that because the rate keeps increasing.

YUANQING YANG: Much less than.

GEOFF COLVIN: Less than Coke.

So these are very successful businesses, very successful business leaders. I’ll talk with them for a bit and then I will invite questions from all of you. So please don’t be bashful when the time comes.

Muhtar you have arguably the best Window into the consumer economy of anyone. What are you seeing in the way of new and important trends in consumers globally?

MUHTAR KENT: Thank you. I think probably the important thing that we see that is changing, shifting at a very dynamic rate is that consumers no longer want to be talked to by companies that make products, that they actually want to have a dialogue with consumers. Of course, connectivity is very important in this respect. The number of households that have Internet, number of phones in the world, smart phones in the world, so the consumers actually want to have a robust dialogue with companies. They want to also have those companies that make those products for them, even though they’re the greatest products in the world, they can be the best products in the world, they actually want the character of the companies to get closer to what they expect the character to be of those companies that manufacture those products.

In the past, 15 years ago, you used to make a quality product, put it on the -- get it onto the shelf, get it onto retail points of sale, and have good advertising, in other words create positive consumer impressions of those products and essentially that was how business worked. Today positive consumer impressions are no longer important. You actually have to create positive consumer expressions and have consumers talk about your products in a positive manner with each other.

And that is the thing that really is changing, and of course how you create communication with consumers today even we’re in China today, roughly around 10 percent of consumer product advertising goes through essentially social media means in China, and that number is going -- that percentage is going to go all the way up to about a third of the total advertising pie by 2015, 2016. So here in China a great market and it’s evolving at an incredible pace.

GEOFF COLVIN: In other words, this trend you’re talking about is true in developing markets. Is it true? I mean China is a developed market really at this point, but it is true globally?

MUHTAR KENT: It is true globally. It’s happening everywhere around the world, character of companies need to get much closer to what the consumers expect, and therefore of course everything that you do, the way you operate, your social values, everything needs to get closer to what is expected of you by consumers. Positive consumer expressions are key. How you create them and how you sustain them is the key to success.

GEOFF COLVIN: Right. I think we’ll be coming back to this issue. Yuanqing you have a window into the technology economy. I mean as the world’s number one, or soon to be number one PC maker, among other things. You see the demand by companies and by consumers for all kinds of technology. This is often seen as a sign of the overall economy. What do you see as new and important trends?

YUANQING YANG: So definitely our industry is in transition. So if you are analyzing the traditional PC, last quarter it dropped by 14 percent. So this is the worst quarter in the 30 years history of the PC. But if you combine PC together with smart phone, with the tablet, it’s a growing industry. So that’s wild. So we set a strategy to become not just a PC player, but also a PC-plus player. So we must win in the tablet area, in the smart phone area, just like Muhtar said. So now everything goes mobile.

GEOFF COLVIN: Everything goes mobile and what’s the difference that you see in the most developed economies, Western Europe, the United States, versus the developing economies?

YUANQING YANG: From a growth point of view, so definitely now Europe is the worst scenario. So there is a lot of uncertainty in that geography. So the U.S. is okay. But I’m worried about the current loose monetary policy, whether it can last a longer time. So China is definitely not growing as fast as before, as the past 30 years. So even in our industry, so it used to grow at twice of the GDP. But the first half of this year it dropped, as well, by double digits. So from a long-term point of view I’m still optimistic, because in the past 30 years the key driver engines are export and the government investment. So we still haven’t completely initiated the domestic consumption. So I think if we strengthen our domestic consumption so that we still can keep a very decent growth, that’s my view. Definitely the emerging market will be the hope, will be the potential.

GEOFF COLVIN: Yes, Jamie, demand for credit from businesses, demand by businesses has been a big topic for the past few years. What we keep hearing and reading is that, in fact, banks would love to be lending more, but the demand sometimes isn’t there. What trends are you seeing in that now?

JAMIE DIMON: Let me just give a little bigger picture first, things that aren’t changing. Technology is just driving change everywhere. It has been for centuries and it will continue. It’s faster. Talent, there’s always a fight for talent. The market, if you actually look at the growth in the market that drives banking services it’s growing like this. I mean if you took the number of multinationals, the amount of trade, GDPs of the world, high net worth of the world, so forget the -- people over react to the vicissitudes of the market. The real growth is like this. And then the hard thing for us is to manage through the vicissitudes of the market. And you look at credit; you’ve got to look at everything, public and private. It’s wide open, particularly in the United States. I think there’s some pressure in Europe, but the United States is wide open. I think people can get credit in China, et cetera.

So the main thing, the real difference to me, and I’m going to say it’s a broad issue and then it’s very narrow, government’s role has changed dramatically since the crisis kind of globally. In governments the best example is Europe, where to me it remains to be seen how this is all going to sort out, what’s the role of government, what promises can it make, what can they accomplish, what can’t they accomplish. What do they over promise, which is becoming common, and then specifically for banks it’s both I would say regulation, but also how the world is managing interest rates in a way that hasn’t really happened since -- there’s an example, by the way, it’s World War II. But, that was the last time it happened like this.

GEOFF COLVIN: The last time what happened?

JAMIE DIMON: That central banks of the world -- well the United States Central Bank set the 10-year bond rate, and it was 2.5 percent for 8, or 9, or 10 years. And so that’s unique. I mean we’re all struggling with it’s a different world when central banks are managing interest rates. The market still sets rates for a lot of different things, but a lot is being set by central banks, too.

GEOFF COLVIN: Right and so the question everyone would like to hear your views on is what do you expect to happen there. I mean they’re so close to zero. Rates are so close to zero almost globally that it is an extraordinary situation. When is it going to change?

JAMIE DIMON: Let me start by saying that I think what the Fed did, and some of the other central banks, it worked. So I give them credit. You know, they didn’t know exactly during the crisis. We had a crisis. We needed to make changes. But America is growing, home prices are up, asset prices are up, the GDP is growing 2 percent plus. It should be more. In the world, China has been growing, and you can argue it should be more. Europe is kind of flat lined, but you could argue it could have been worse. So it’s kind of worked.

Then there’s this issue about removing it. And, first of all, I think we all should hope for a normalization of interest rates. That’s a good thing. The question is what are the circumstances when it happens. So to me the bookends are, it’s really working, America is growing at 3 or 4 percent. We’re adding jobs all the time. Everyone is making money. Prices are up, and the Fed stops buying, maybe even starts selling. You’re not going to care. It will be okay. There’s huge liquidity out there. The circumstance where you’re in a sustained recession, possibly with inflation like stagflation, that’s a disaster.

In any event, I think you should expect as we go back to normal it’s going to be scary, and it’s going to be kind of volatile. And everyone is going to be looking at every word the Fed says. If you tell the markets A, B and C are going to happen, they will happen a lot differently than you expect. So there will be volatility.

After World War II, which is the only example I know of, it wasn’t until like 1950 where they let 10-year bond rates go. A lot of volatility, the markets were up and down. GDP was up and down. But growth took off after World War II. So I don’t think it’s right for all these people to say it’s going to be a disaster. I think that’s probably excessive.

GEOFF COLVIN: Well, in fact, your first point was remember the long-term trends.

JAMIE DIMON: The long-term trend is great.

GEOFF COLVIN: It’s encouraging.

Yuanqing, we’ve talked about a little business models and so forth. You are in a very interesting situation at Lenovo because the PC business for decades was a fast growing business. As you say, it’s now arguably in long-term decline. Yet Lenovo is making a big strategic bet on continuing to be in that business, in fact, to dominate that business.

How are you changing the business model to succeed in a radically different environment?

YUANQING YANG: The business model is definitely an important successful element. You must balance the business model. Actually in our industry, once the direct model was the dominant model, because at that stage the PCs were used mainly by the commercial customers. So they liked the direct model. But when the industry shifts from the commercial side to the consumer side, the business model has been changing.

So now it seems retail has become more popular. So Apple is building themselves a store. Samsung is building stores as well. Microsoft is trying to build more and more stores.

GEOFF COLVIN: And Lenovo has some stores.

YUANQING YANG: Yes, in China we have a couple, they are in China and India and some emerging markets. So in mature markets, we rely on the larger format retailers like Best Buy. But this shouldn’t be the only model. This shouldn’t be the only model simply because the business customers are still there. They still need the different model. So they would not buy in the retail stores.

In Lenovo we created a very unique dual business model. We use a relationship model to cover the enterprise requirement. We use the transaction model to cover the consumer and the SMB demand part. So this is an end-to-end business model. It’s not just a sales model, direct versus retail.

So actually for different customer categories, from a product requirement, they are different. For commercial customers, they need the more reliable, durable products. For consumer customers, they need the more stylish, latest tech knowledge, cheaper products. So from a manufacturing point of view, business of customers, you should use a build-to-order model. For consumer customers, you should use a build to plan model from a sales point of view. A service model is different. So you must have this kind of balanced consideration.

So today in China it seems everyone thinks online sales will become the dominant model, the online model. But I don’t view it in this way. I think the online and the offline should be balanced. So particularly for those consumers, they’re still likely to look and feel, to see the products and decide which one they want to buy.

GEOFF COLVIN: It makes sense.

Muhtar, you described a few minutes ago a completely different world of presenting your brand to consumers. Now, the old way of doing it was a way that Coca-Cola mastered. In fact, Coca-Cola led the world in developing that from of marketing and that brand building and presenting the product. What have you learned about changing this big, old, successful organization to doing it in a new way?

MUHTAR KENT: I think, first, Coca-Cola is really a relationship company. We have 275 partners around the world, including here in China. And we operate with those local partners that actually make us really understand the local conditions and consumers much better. That’s number one. So that is a very big advantage. That’s how we’ve always operated, and that’s how we continue to operate.

In terms of the consumers, consumers’ tastes today evolve much faster. Their needs evolve much faster. Consumers have much more information than they ever had. And I think today we are seeing shifts in the retail landscape in terms of how consumers shop. We see shifts in mobility, shifts in consumer trends, consumption patterns everywhere around the world. And where they stay, where they go to get entertained, how they want to be entertained, what they want to drink, what they want to eat, all of those things are changing. The important thing is to understand them, and to be able to actually be ahead of those trends.

And so you mentioned that we have Coca-Cola as a brand. We actually have 499 other brands, 3,000 other products. That’s all evolving. You need to continue to innovate, and you need to continue to ensure that you can stay ahead of those trends around the world, whether it be in Africa or Latin America, or right here in China.

GEOFF COLVIN: And what you’re saying is that in your case your partners, the bottlers for the most part, are right there and will help you do it, because they see it before anyone else?

MUHTAR KENT: Well, that is true, and also they are able to operate much more effectively in local conditions, distribute. We are a business where we produce locally, invest locally, produce locally, sell locally, hire locally, and pay our taxes locally. That’s the kind of business that we are everywhere.

I’ve just come from Myanmar where we opened two new plants, and if it wasn’t for our local partners we couldn’t get operating. We couldn’t be the first company that received the foreign investment permit and have two plants on the ground, and already have on our payroll more than 1,000 people.

GEOFF COLVIN: This is in a day, right, two days, something like that?

MUHTAR KENT: We’ve been working on it for a little longer than a day.

GEOFF COLVIN: I know.

Jamie, as you said, the role of government in your industry has changed, and it’s a global phenomenon. And you have told the shareholders, you’ve said publicly that control and regulatory, that agenda, is top priority now for the bank.

You have a big, successful organization, how do you get them focused on a top priority that’s not what it used to be?

JAMIE DIMON: So first of all, banks have always been heavily regulated, so it’s not that different. It’s just more intensive. There’s a crisis. Standards are changing. I give my kids advice, get adjusted to the new reality quickly, that’s what that was. We’ve got to fix certain control things. We had some problems. We still are growing. We had record results. It doesn’t take away from all the great things the company has done. But when you have these demands from your regulators, we’re going to meet them. We fell short in a couple of things they wanted us to do. And so it’s like with the local partners, that’s what we have to do to be successful, and we’re going to do it.

The whole company gets it. Organizationally we took some senior people and we made it the job of me, and all the senior people, as opposed to pushing it way down the organization. We have dedicated staffs. We’ve got a group of hundreds that do nothing but stress testing. We’ve got a group of 50 that do nothing but resolution. So we’ve completely organized around these new challenges, as opposed to making it part of everyone’s job.

GEOFF COLVIN: Then nobody owns it?

JAMIE DIMON: Then nobody owns it. It’s a little bit more like I think for the most part it’s better business to delegate as far as you can, and stuff like that, and to collaborate as much as you can. But, in certain circumstances it’s command and control, like when you do an acquisition. It’s command and control. You don’t have the time and you can’t have a vote on which systems you’re going to use, or what products or branding. So this part of the agenda we move to more of a command and control structure.

GEOFF COLVIN: I want to ask you a general question on something you mentioned, which is the idea of adjusting to your new reality. You are well known for facing the new reality faster and more completely than most executives in most businesses. Why do most organizations have such a terribly difficult time doing this obvious thing?

JAMIE DIMON: I think a lot of people do it really well. If you look at a lot of businesses, they are exceptional. Look at these guys. They’re changing around the world all the time and they’re adjusting and bobbing and weaving, and adjusting to it. Look, I think it’s important for companies and CEOs, but for the companies, the senior teams to know what’s going on, to get out in the field, to listen to it, to hear it directly. There is this temptation at corporate headquarters, if I write a book it’s going to be about the disease of corporate headquarters, if I write a book it’s going to be about the disease of corporate headquarters that the staff takes care of everything, don’t worry about it, Jamie, we took care of that. And you’re sinking deeper and deeper into a hole you don’t even know.

So get out, talk to the people, talk to the regulators, go to Washington. You may not like what you’re hearing, but at least you can respond to it and I always talk about you could be any kind of different good CEOs are all different types. But one thing I think you have to be is open, sharing information inside the company, transparent. No one should walk in the office and be afraid to say whatever they think. If that’s the kind of CEO you are you’re going to have a problem, it’s just a matter of time. You’ll have problems anyway, by the way.

GEOFF COLVIN: Right. You’ll always have problems there, right. Another topic, human capital, talent, as you said, the battle is always there. JP Morgan Chase has a training program for new people that is famous in the industry. In fact, it’s famous outside the industry. What are you noticing that’s different about the people you’re bringing in now who are attracted to this program, I presume, but they’re not the same people they used to be?

JAMIE DIMON: So we have hundreds of programs. As a matter of fact, I think companies do a tremendous amount of training way beyond what people think. So the one you’re talking about has been going on for years before I got there. We put maybe 1,000 people through the investment banking credit, training things like that. It’s intensive. We still get the best and brightest out of schools. You hear that it’s changed and that kids are different, total hogwash. I heard that when I was in high school after the Vietnam era. I heard that when I went to school. This generation is lazy and sloppy, and not ambitious, and expects to be handfed, totally untrue. They, like any younger generation don’t exactly know what they’re getting into, except their own views of right and wrong, good and bad, and green. But, that was always true. My generation got out there, wanted world peace, so I think the generation -- it’s globally now. The talent is global.

We have a knowledge center where we do a lot of high tech research in India. When I first got to JP Morgan we had a lot of turnover and one of the reasons was is we hired the best and the brightest and we didn’t give them jobs in the rest of JP Morgan. Now we have hundreds of kids from India who did so well that the top part of those classes, they automatically get moved around the world. So this thing for talent is global. It’s going to be everywhere and the talent has never been better.

One example that I read about, Stanford University, a teacher in artificial intelligence offered a class, a couple of hundred kids in the class, he offered it online to 30,000 people, or 20,000 people, and if I remember correctly when he gave the test there were 400 people, or something like that, that did better than the number one kid at Stanford. That shows you about the talent. And that’s technology, which is going to transform mankind. I mean, in other words, you’ve got a lot of Steve Jobs. They’re out there. They’re not in Stanford. They’re in other schools. And when that gets going, god knows how many Albert Einsteins and Thomas Edisons we’re going to have.

GEOFF COLVIN: Yuanqing, this is a topic you are passionate about. I know you have possibly the most global top team of any large multinational company that I know of.

YUANQING YANG: Yes.

GEOFF COLVIN: What has been your philosophy of bringing together that team and developing it?

YUANQING YANG: Our solution to this topic is very simple, to be true global, to be a diversified company. So you should attract as many as possible of the local talent. So if you want to operate in this country you should leverage the local talent, not only to have the local talent, to lead the business, to build the local manufacturing, to support the local business. So that’s why we just opened up the factory in the U.S. We built the plant in Brazil. And also we try to build the R&D in some key -- in most of the key markets, key countries, so that we can develop the customized products for the local requirements. So that will be our solution.

We also try to acquire some local companies to build the strong base in the local countries. We acquired NEC PC in Japan. We acquired Medion PC in Germany. We acquired CCE PC TV and smart phone in Brazil. So with that approach, so we’ve become more local. So we have a strong base. We have more capability to expand into the new areas from PC to PC plus, from PC to smart phone, to TV, to tablet. So as you just said, among our top executives, we have the most diversified team.

GEOFF COLVIN: How many countries, someone told me this, but I can’t remember, how many countries are represented in your top team?

YUANQING YANG: Yes, so our top 10 executives come from six or seven countries. And every month we choose one location, different locations to have our top executives meeting. So this is a pure global company.

GEOFF COLVIN: And I presume that you can actually identify advantages you get from composing the team in that way, is that right?

YUANQING YANG: That’s 100 percent right.

GEOFF COLVIN: Yes, okay. Muhtar, this is a topic close to your heart, as well, I know. Now, Coca-Cola is another company that’s well known for leadership development, on various lists it’s ranked very high in leadership development and so forth. What’s changed? And what are you focusing on most when it comes to that?

MUHTAR KENT: Well what’s changed is that probably typically 20 years ago we had maybe about 10 nationalities represented at our headquarters in Atlanta. Today that number is over 70, seven zero, nationalities in management, represented in our headquarters in Atlanta. And I think the mobility is something that’s changed. People are willing to move everywhere. I think we expect of our leaders to be as comfortable in Munich as in Mumbai, and they need to really be able to understand different cultures, understand different languages, be comfortable everywhere they operate. And that’s really the thing that’s changed.

And we have the key is that when we operate in 207 markets we see every one of those markets, because we actually operate factories in those markets. We don’t just ship product with containers. We hire people locally, train people locally. We also see every one of those countries as potential talent export countries. And we export talent. We’ve exported talent from China. We have a Coca-Cola leadership academy in China that trains over seven and a half thousand people every year. We employ 50,000 people directly in China. And we see China as a great export talent market for exporting talent. And so it is that itself that has changed.

Secondly, what has changed is that I think psychic income is critical in an organization. We see that in an organization of 770,000 people around the world that you need to be able to articulate a vision and everyone needs to be connected to that. So when I travel in Africa, we visit markets, if I can’t hear that same language articulated then I know that there’s something wrong. And so it’s got to be that is critical in ensuring that an organization understands the whole culture and the direction.

GEOFF COLVIN: What you’re saying sounds like -- well, what you said about customers at the beginning, and the way they have changed applies in a way to the employees, as well. They want to understand that the company stands for something, that there is a mission, that there is a purpose here beyond the product.

MUHTAR KENT: Absolutely right. And that’s why we have embarked upon a task to empower five million women by 2020 across the world. We call that the 5 by 20 Program. We have that program working here in China too. And that is to train, to mentor, and to provide micro credit to prospective women entrepreneurs, and see them flourish in small businesses around the world. We have by the end of this year, which is the second full year of it being in existence, we will achieve about roughly 500,000, and in the next eight years another 4-1/2 million. And you can’t do that alone.

The critical thing about the world today also is that businesses have to partner effectively with civil society organizations, NGOs, and I know that Lenovo does that. I know that JP Morgan does that very effectively. We all have to do that more and more effectively. I call it the Golden Triangle, government, business and civil society. We can’t solve the world’s youth unemployment problem alone. We can’t solve the woman gender equality problem alone. We can’t solve many of the issues in the world alone, and that’s what happens more and more in the world. Partnerships between public and private and semi-private NGOs that are really critical to what we all want to achieve that is business with a purpose.

GEOFF COLVIN: Yes. I’m going to invite questions here in just a second. But, Jamie, it sounds like what Muhtar was saying about purpose and mission is resonating with you?

JAMIE DIMON: Yes. It is, and I’ve heard Muhtar talk many times about the things that Coca-Cola does. Obviously, people want to work at a place they respect, that the place is doing good on this planet. All our companies, you can’t go do business in a country if the country doesn’t think that they’re going to be better off having JP Morgan there, and that we’re not a good citizen there, we’re not bringing value there, it’s not going to work. So all the people in the company feel good about it.

So all the good things we do, you know, in the United States we tithed 5,000 veterans, we finance cities that couldn’t -- after Super-storm Sandy, we backstopped $2.6 billion. No one else would lend money to them. And so, in addition to all the philanthropy, and you mentioned training, we train hundreds of officials from around the world go through the training programs.

GEOFF COLVIN: Officials from?

JAMIE DIMON: Government institutions, sovereign wealth funds, cities, states, you name it, because that’s part of what we do to help and provide the advice, and stuff like that. So I think everyone in the company wants to say I like this place, it does good things, it’s a good citizen where we do business. If it makes a mistake it admits it. All businesses make mistakes.

GEOFF COLVIN: Questions? There are mike handlers out there, so all you have to do is put a hand up and someone with a microphone will come.

The red paddle, please. Sorry, the green one, please.

QUESTION: (via translator.) Thank you very much. I’m Kevin from the City of Chengdu. I have a question. China is undertaking unprecedented urbanization. The question is for all of you, could you shed some light on what technologies and innovations can help China transform the way of urbanization with better quality, with better outcomes in its urbanization process? And at the same time, for China, what business opportunities can urbanization offer in China?

GEOFF COLVIN: The question is about technology, Yuanqing, so if you could start, please.

YUANQING YANG: So you want me to answer in Chinese or English?

GEOFF COLVIN: It’s up to you, honestly.

YUANQING YANG: (via translator.) So urbanization actually is definitely the trend of China. Urbanization can help us to solve a lot of issues, including the consumption driver of China. More people from rural areas of China will move to urban areas, and then we will have a higher level of consumption. Then we can liberalize and free up more consumption power.

The GDP per capita in China now is only one-sixth or one-seventh of the United States of America. And in contribution of GDP per capita, it’s much, much lower than that of the United States of America in terms of contribution of consumption to GDP or GDP per capita. If we can use urbanization to free up this power, the third driver, then we can extend China’s high-speed growth for decades.

Of course, we have many challenges in the process of urbanization. For instance, how can we jack up the living standards and the salary and the disposable income of the people so that we can have some conflicts be addressed? Of course, there are some issues. If we raise wages, the competitive edge of the manufacturing sector will decrease. That will also translate into some issues. Of course, this will test the wisdom of the Chinese government.

Another very important issue is the social security. In the process of rapid urbanization, this mobility of people from the rural areas, how can they be protected by the safety net? How can they consume at ease without worrying about what will happen when they are 70 or 80, when they’re old?

So these are all very important issues, and also another issue is about the price hurdle related to the taxation issue. If we have 70 percent value added taxing of all products, then it’s very difficult for us to have cheaper products in China than the United States of America. Then that will also be a very important hurdle of consumption. That is a price hurdle or obstacle.

So in terms of the technology, I have some predictions. First, computerization will be everywhere in the future. In the past, we have computers, PCs. But now your mobile phone is a computer. Your TV can be a computer. And all terminal devices can have a capability, a very strong capability of computing.

And the second trend is a mobile trend of all of the devices. And you will have these devices everywhere, anywhere, and so the PC will be not on the desktop. It will be everywhere. It can be used as a TV or any other devices.

And a third trend is humanization. Human factors will be more important. It will be much easier to communicate between people and machines, like voice control, touch control, et cetera, will be more intuitive. You can recognize face, the eyes, and the fingerprint, and all these technologies will be the trend. So I can wave to the machine of the Coca-Cola, and I get what I want. I talk to my cell phone, and then I can sell my stocks through JP Morgan’s accounts. Of course, you have to have money in the JP Morgan accounts first. Maybe these are the trends of the future in terms of technology.

The last trend to me for businesses, for customers of businesses, consumerization is a trend. Consumerization will be a very obvious trend. Now business will buy a computer for employees, but in the future all the computers and devices will be brought by the employees themselves. They will bring their own devices to the businesses. But then we’re facing new issues of security, et cetera.

So these are my views. Thank you.

QUESTION: (via translator.) My question is directed to the CEO of Coca-Cola. So we have more than 60 percent of the people online in real-time. So for Coca-Cola in this kind of a new environment of the Internet world, how can you keep your very strong position as the number one brand in the world? How can you be more adaptive facing these new generations of consumers? Thank you.

MUHTAR KENT: Yes. I think as I said at the beginning, I think you nee dot establish dialogues, one-to-one dialogue with consumers. That’s why Coca-Cola today would have almost 70 million members on its Facebook page. That is why we have rewards programs that are directed specially to enable us to have those one-on-one dialogues with consumers understanding their needs. And as long as you can keep up with the needs of the consumers, as long as you can continue to innovate with your products, innovate with your packaging, innovate with your delivery mechanisms, and ensure, like Mr. Yang said, just to have it available also to work with the latest technology, and also be part of the social story.

And I’ll give you an example, and this was not an easy decision. But the other day we had a vending machine in India and a vending machine of Coca-Cola in Pakistan, and had cameras on the vending machine where a consumer in India shared a Coke with a consumer in Pakistan, and that collapsed all the social media networks because so many people were talking about it. So just a small technology, a product, a brand creating that kind of buzz between two countries that really have not been able to come together as peoples and as governments, and whereas the consumerism is bringing those two countries together.

So it is those kind of being ahead of trends, ensuring that you can take some risks. There’s no reward where there’s no risk. So you’ve got to be able to take risks. And that was a risk we took, and that created that kind of buzz. And also to be able to talk and listen, most importantly listen to consumers, have dialogue with them.

But one thing I would just like to add to the previous question, if I may, about technology. There’s also, I think, a really important factor, which is that as in a country like China, inevitably, as it happens now, and inevitably it’s going to happen where wages are rising ahead of GDP. I think it is so important to be able to crack the calculus of productivity, and to be sure that you can use technology in an effective manner so that logistics wise, distribution-wise, production-wise, you can be sure that you are achieving productivity, because if you can’t, then you can’t sustain your business growth model. And I think it’s critical upon all businesses in all emerging markets.

And then comes the following question, through productivity, if you achieve productivity and you are able to cut costs so that you can stay ahead of the game where labor costs are rising ahead of the GDP, then what happens in terms of unemployment or creating job opportunities for those people that now are seeking alternative employment methods because of productivity coming into the game?

I think there’s a wider sort of macroeconomic and social policy issue that we all need to be aware about, and also we all need to maybe come together about some new definitions of what work is and how opportunities are being created, also.

GEOFF COLVIN: For sure.

Here please, this will be the yellow paddle.

QUESTION: I refer to Mr. Kent’s remark on the triangle of government, business and civil society. I think it’s an important remark you are making here in China, because the civil society factor has been a difficulty in the past to register. This has changed. I’m Chairman of such a civil society structure, global think tank called the Club of Rome, and I’m just coming from Beijing, where they have informed me that the rules for registrations of civil society structures have been streamlined and improved, so much so that this triangle can also be applied here in China. Thank you.

GEOFF COLVIN: Thank you.

Well, it’s an uplifting note on which to end. I’m sorry we have to wrap up, because we’ve had some tremendously insightful comments from our three panelists. But we do have to wrap up. We have to keep to time.

So we’re going to be going straight into the next session, but first of all we most heartfeltedly say to Jamie Dimon, Muhtar Kent, Yuanqing Yang, thank you all so much. (Applause.)

END

]]>bkrasnoveMuhtar Kent’s New Cokehttp://fortune.com/2012/05/10/muhtar-kents-new-coke/
Thu, 10 May 2012 13:00:56 +0000http://test-alley.fortune.com/2012/05/10/muhtar-kents-new-coke/]]>A version of this article appears in the May 21, 2012 issue of Fortune.

Muhtar Kent, the son of a Turkish diplomat, grew up in Thailand, India, and Iran, and he runs a company that operates in more than 200 countries. So it is rare for him to visit a place he’s never been before. Yet as we travel by van out of Shenyang, a bustling metropolis of 7 million people, the Coca-Cola CEO quickly finds himself in uncharted territory: an increasingly desolate expanse of land in China’s northeast, the nation’s former rust belt. Then, eight kilometers from our destination, we are greeted by a ribbon of red banners -- 1,520 of them -- leading the way to a new bottling plant, Coke’s 42nd in China and its largest to date. Hundreds of workers, all in bright red hats, cheer his arrival. “China will be Coke’s largest market,” Kent says. “I can’t give you a time. But it will happen.”

This unflagging confidence that China will more than double its sales of Coke products to leapfrog Mexico and the U.S. and become the company’s No. 1 market confirms what many investors (and millions of consumers) have come to realize: Kent has put Coke (No. 62 on the Fortune 500) back on track -- after years of mismanagement -- and he’s set up the beverage giant for significant growth around the world. Since he ascended to the CEO job in July 2008, he’s redefined Coke’s culture and replaced about 70% of its senior managers, filling the ranks with operators who, he says, “know how to generate results.” The new team has ramped up spending, energized Coke’s marketing efforts, and cranked up the dealmaking machine: The company is discussing a potential partnership or possible investment in energy-drink maker Monster Beverage. Coke has been busily integrating its $4.1 billion purchase of Glac?au’s Vitaminwater, and Kent personally devised an intricate $12.3 billion deal that restored company control of its bottling operations in North America and positioned Coke to ignite growth in a once-stagnant market. The upshot: Revenue last year soared 33% to $46.5 billion, in part because of the bottling deal, and operating profits rose 20% to $10.1 billion. The stock is up 48% during Kent’s tenure while the S&P has risen 10%. Shares of rival PepsiCoPEP? Up only 5%.

For more on Coca-Cola, watch this video:

Coke KO and Pepsi perpetually seesaw; when one is up the other is down, an uncanny pattern that seems destined to continue. Right now it’s Coke’s -- and Kent’s -- time. Coke is the No. 1 soft drink in the U.S., and Diet Coke has surpassed Pepsi as No. 2 in the category. Coca-Cola has built 15 billion-dollar brands, including Sprite, Fanta, Minute Maid, Powerade, and Dasani water. While PepsiCo investors are critical of Indra Nooyi’s performance, Coca-Cola’s shareholders and directors are feeling content. Herbert Allen, the CEO of investment firm Allen & Co., calls Kent “the best chief executive Coke has had in 25 years.”

Now Kent aims to double Coke’s business by 2020, no small feat for a company on track to hit $48 billion in sales this year. To achieve that ambitious goal, he is pushing Coke to be more global, agile, and entrepreneurial -- in essence, more like himself. “I’ve never met anyone so intense,” says Coke board member and IAC chief executive Barry Diller, who is buying Coke stock for the first time. During a nonstop, five-day trip through Asia in late March, the 59-year-old Kent constantly exhorted his employees and managers to act with urgency. “This is your once-in-a-lifetime opportunity,” he tells them. “Don’t miss it.”

Muhtar Kent says he is constructively discontent. It’s day one of the trip through Asia (Coke is letting me tag along), and Kent and I are having breakfast in Bangkok -- coincidentally, the first home he recalls from childhood, when his father was Turkey’s ambassador to Thailand. I ask Kent what “constructively discontent” -- his preferred description of his leadership -- means exactly. “Not fast enough, not innovative enough, not entrepreneurial enough,” he replies. “It’s all about an entrepreneurial mentality. I’ve worked religiously to get that into the company.”

Injecting entrepreneurial religion involves getting Coke’s 146,000 employees to think like owners. “People need to feel like they are chasing pennies down the hallway,” says Kent, who has been known to roam the 25th floor of Coke’s Atlanta headquarters and turn off lights when he works late. At Kent’s Coke, managers must pay $15 monthly if they use their cellphones for personal calls. (The rule applies to the CEO too.) He believes that one of Coca-Cola’s problems was -- and America’s problem still is -- lack of respect for cash. “When you don’t see cash, all sorts of things go wrong,” he says. “You overspend as an individual and overspend as a company.” The CEO pays cash when he fills his BMW at the gas station. When I ask him how much cash he has on hand he pulls out a money clip and counts $181. In fact, the only currency Kent doesn’t monitor seems to be Coke stock. The CEO tells me that he looks at the share price only once a week.

Kent has been Coca-Cola’s resident entrepreneur almost since he joined the company in 1978. He started in bottler operations in Atlanta after graduating from the University of Hull in England and lasting seven weeks in a job he loathed, at Bankers Trust in New York. He got promoted to a marketing job in Rome, only to hear rumors that Coke planned to shut the Italy office. Kent flew to London and worked out an assignment to sell Coke to European airlines, trains, and ships. “It was the perfect entrepreneurial job,” says Kent, who kept an office in Amsterdam, “just me and a Dutch secretary, Agnes.” Figuring that Coke’s standard 12-ounce cans were too unwieldy for the small galleys on planes and the like, Kent found a manufacturer to make 150-milliliter mini-cans. Coke captured major accounts across the Continent.

By age 32, Kent was running Turkey for Coke -- and soon known across the company for increasing “per caps,” or per-capita consumption levels, in his markets. Kent had his own once-in-a-lifetime moment after the Berlin Wall fell in 1989. Neville Isdell, Kent’s boss at the time, put him in charge of Eastern and Central Europe and told him, “I want to take risks. Do things that have never been done before.” Kent remembers flying to Atlanta and telling his bosses, “I need capital, and we’ve got to go now.” Kent and his team built 22 factories in 28 months.

Kent distinguished himself by lavishing attention on the independent companies responsible for packaging and distributing Coke’s beverages around the world. “I was staggered by his focus on the needs of the bottlers,” recalls Don Keough, president of Coke from 1981 to 1993. Kent had good reason to maintain good relationships with these partners. Coke manufactures concentrates and syrups, but the bottlers are closer to the customer; they make, sell, and deliver the drinks.

Coke management at the time had other ideas. Doug Ivester, who led Coke after the 1997 death of legendary CEO Roberto Goizueta, sought to maximize Coke’s own profits by strong-arming bottlers to consolidate and also overcharging them for concentrate. The moves alienated bottlers and left them financially strapped.

It’s all about an entrepreneurial mentality. We’ve worked religiously to get that into the company.”

Kent experienced all this firsthand. In 1995 he became the European chief of Coca-Cola Amatil, a big Australia-based bottler. He was so disgusted and worried about Coke’s actions that he decided he would quit. He ended up resigning, but for a different reason. Kent got caught in a stock-trading incident after his broker sold short 100,000 Amatil shares in advance of a profit warning. Kent settled the case in 1997, gave up the profits he had made, and denied wrongdoing. “I should have been more careful,” he says today, talking publicly about the incident for the first time. “That taught me a lesson that you should never take anything for granted.”

Bruised and also determined to control his destiny, Kent returned to Turkey, set up a consulting business, and soon accepted an offer to head Efes Beverage Group, an Istanbul-based brewer. Kent loved his six years at Efes, expanding in soft drinks -- he opened Iraq’s first Coca-Cola plant -- and creating new products like Stary Melnik, which grew to become a top-selling beer in Moscow.

Kent never lost touch with Coke, which struggled mightily in the late 1990s and the first half of the 2000s. Ivester, the financial engineer, lasted less than three years as CEO. He was succeeded by Doug Daft, another finance man whose mercurial style alienated some of its best talent before he was pushed out. But Kent had no interest in returning to the company, even when, in 2004, he got a desperate call from his old boss, Isdell, who had been coaxed out of retirement to become CEO and stabilize the company. “I can’t do this without you,” Isdell told Kent time and again. The Coke board questioned whether Kent’s stock-trading controversy would preclude his rehiring. Six months passed until everyone agreed on terms, including Kent’s: “I said I’d come back with one caveat,” he recalls. “I told Neville, ‘I’ve never worked in Asia. I want to be connected to China.'” Why was he so adamant? “Because you want to do new things in life,” Kent says.

Kent returned to Coke in 2005, as head of North Asia, Eurasia, and the Middle East. He followed his old playbook, working with the bottling network to find ways to boost sales volumes. When Isdell promoted him to president of international operations, and then of the entire company, Kent zeroed in on fixing Coke in the U.S. The problem, in a nutshell: Coca-Cola Enterprises, which was Coke’s biggest bottler and a tarnished remnant of Ivester’s financial strategy, had taken on too much debt and could not invest adequately in Coke’s brands. “Coke had no chance to grow in the U.S.,” Kent believed. Isdell agreed -- and tried unsuccessfully to buy CCE’s North American business, twice.

Then Kent found his potential linchpin for a deal in June 2007, over breakfast in Madrid with Steve Cahillane, the president of Labatt USA. CCE chief John Brock wanted to recruit Cahillane to head CCE Europe, but Kent saw Cahillane as the ideal executive to turn around Coke’s U.S. business. (Cahillane was an entrepreneur too. He founded State Street Brewing in the ’90s, which impressed Kent.) Kent encouraged Brock to put Cahillane in charge of CCE North America. Relations between Coke and CCE improved dramatically. Then, in 2010, Kent sold CCE and the Coca-Cola board on a megadeal to buy the North American bottler. The complex agreement required Coke to pay $12.3 billion and give CCE rights to bottle Coca-Cola products in Norway and Sweden. “It was Muhtar’s excruciatingly detailed plan that convinced the board to proceed,” says Diller.

Since the acquisition, Kent’s Coke is bigger and more complicated than the Coca-Cola Co. led by his predecessors. The deal brought 65,000 new employees, $21 billion in revenue, and various synergies that helped Coke slash $350 million in annual costs at the same time that commodity prices were spiking and squeezing the company’s profits. “Had we not done the CCE deal, it would have been cataclysmic,” Kent says. While Wall Street fretted that owning the big bottling unit would crush Coke’s high returns on capital, veteran analyst Caroline Levy of CSLA Cr?dit Agricole Securities approves of the strategy: “Buying CCE wasn’t good for the short term, but it is exactly right for 2020.”

The complexity of Kent’s Coke would seem to hamper his scheme to make the beverage giant more nimble and innovative. But Coke’s aggressive acquisitions of independent brands such as Honest Tea, Zico coconut water, and Innocent, a British-based juice, have infused the company with entrepreneurs who continue to run their brands and in many cases operate far from corporate headquarters in Atlanta.

Kent has simultaneously filled his ranks with executives who share his constructive discontent. Derek van Rensburg, president of venturing and emerging brands, is constantly pushing Coke to buy more niche brands. “All he does is knock on my door and create havoc,” Kent says proudly. David Butler, a shaggy-haired design guru whose title is vice president of innovation, led the design development of Coca-Cola Freestyle, a self-serve fountain machine that lets consumers mix their own beverages via touchscreen. (Anyone for Vanilla Coke Zero + Hi-C Orange?)

Marketing, which foundered under previous leadership, took on a new urgency in Kent’s Coke. He helped recruit Wendy Clark, 41, from AT&TT four years ago and soon put her in charge of digital strategy. She has built the largest consumer-brand fan page on Facebook, with 41.4 million “likes.” The key to building brands on Facebook, Clark says, is letting the fans take control, a risky proposition for a corporation that has fanatically protected its brand. Clark and her team sat back and watched while two avid Coke drinkers named Dusty Song and Michael Jedrzejewski built a fan page. After they had aggregated 1 million “likes,” Clark invited the two guys to Atlanta, gave them a tour, shot a funny video, and sent them home with Coke bling. Keep on doing what you’re doing, she told them. “We need to embrace our new sales force,” she says.

To home-grow the next generation of innovative leaders, Coke has launched a program called Talent 2020. At first blush it sounds like a typical management training program for high-potential executives. They’re assigned to research a challenge outside their area of expertise. But six months later they pitch their findings to Kent and his leadership team, sans props such as PowerPoint presentations. “Talk to me,” Kent says. “Look me in the eye.” Strong ideas actually get implemented: Ben Deutsch, the company’s communications VP, recommended digital and social media training companywide. Today every employee must take a 30-minute online course on the subject.

Of course, for all his talk of agile management and innovative thinking, Kent can never lose sight of the fact that he is stressing an enormous enterprise. Any new product, no matter how entrepreneurial its roots, adds complexity: New packages -- such as 1.25 liter Coke targeted at moms and 89? Coke Zero designed for teenage boys -- help lift Coke’s volumes in the U.S., but they require Coke to work with its elaborate network of bottlers, retailers, and other partners. “It’s value-added complexity,” says Sandy Douglas, the president of Coca-Cola North America.

All the more reason that Kent needs to communicate a clear vision to Coke’s employees. His plan to double sales over the decade, dubbed Vision 2020, is modeled on McDonald’sMCD CEO Jim Skinner’s one-page “Plan to Win.” Kent’s vision is long-term, but his message is urgent around the world: “There is no tomorrow without today.” It’s a message he delivers to government leaders as well. “The future of the world belongs to two groups: those that can grow and those that cannot grow,” Kent says. “Those that don’t grow will go into oblivion.”

The CEO has plenty more to do. He is off to India in June to open a retail sales center. He is eyeing opportunities in Burma, one of three countries where Coke currently doesn’t sell its drinks. (Cuba and North Korea are the other two.) He is driving a program called “5 by 20” to empower 5 million women entrepreneurs globally by 2020.

Kent doesn’t have to keep doing any of this. Traveling through Asia with him, I sense he could be just as happy focusing on being an entrepreneur -- he has a tiny olive oil startup in Turkey. When I ask the CEO how long he plans to stay on at Coca-Cola, he tells me that he doesn’t know. “Psychic income is key,” he says, smiling.

He has upgraded Coke’s succession planning. Of course, he won’t reveal who might lead Coke someday. But Cahillane, whom Kent calls “a no-nonsense operator,” is clearly a strong candidate. Jos? Octavio Reyes, Coca-Cola’s Latin American president, is too. Also on the board’s radar: Brian Kelley, a Kent recruit who ran Lincoln Mercury at Ford F. Kelley, who also worked at General ElectricGE, earned praise for directing CCE’s integration into Coke.

When I ask Diller if he expects Kent to stay to complete his Vision 2020, the Coke director answers: “Are you kidding? How about 2040? He gets better every year.” Diller says he never bought Coca-Cola stock until three years ago, after Kent became CEO. He now owns about 2 million shares.

While Diller and other stockholders probably know the value of a Coke share, Kent opts to get that information in a weekly report. This is an odd habit for a Fortune 500 chief, but this CEO in a hurry seems to prefer to spend his days meeting employees and exploring those rare new territories. “Looking at the stock,” he tells me as we check out a Chinese retailer’s Coke display, “is just a loss of time.”